Sun, May 23, 2004 - Page 11 News List

Mitsubishi tries to reform, again

EMERGENCY FINANCING After receiving a US$4 billion financial aid package, the company is set to embark on an ambitous restructuring plan. But will it succeed?

NY TIMES NEWS SERVICE , TOKYO

Ailing Japanese automaker Mitsubishi Motors Corp will cut nearly 11,000 jobs, or 22 percent of its global work force and receive ?450 billion (US$4 billion) in funding from the Mitsubishi group and other investors in a revival plan, the company said on Friday. Under the plan, the company will close a passenger car plant in the central Japanese city of Okazaki, shown here in this August 2000 file photo, in fiscal year 2006.

PHOTO: AP

After securing US$4 billion in emergency financing, the ailing Japanese carmaker Mitsubishi Motors is embarking on its second sweeping restructuring effort in recent years, but analysts say its road to recovery is as long as ever.

On Friday, Mitsubishi unveiled a blueprint to rebuild itself with new investment from the Mitsubishi Group companies and a Japanese buyout firm, plus an issue of stock to be underwritten by JP Morgan Chase.

"This plan is our last chance for survival," Yoichiro Okazaki, chief executive of Mitsubishi Motors, said Friday.

The announcement of the bailout came as the automaker also reported a whopping loss of nearly US$2 billion for the fiscal year that ended March 31. The company said that it expected to lose a similar amount this year as it closed plants, trimmed its work force and tried to repair its badly damaged brand.

Mitsubishi Motors has been scrambling for cash since the stunning decision last month by DaimlerChrysler, Mitsubishi's biggest stockholder, to stop supporting the company. Daimler determined that any more investment in Mitsubishi was unlikely to pay off, Daimler executives said at the time.

Okazaki on Friday outlined sweeping steps to cut costs with the goal of turning a profit within three years. Those steps include closing one of the company's vehicle assembly plants in Japan, cutting nearly a third of its nonfactory employees and scaling back production overseas, including at a plant in Illinois. Mitsubishi Motors will cut thousands of jobs to trim its global work force to 38,200 by April 2007 from more than 43,000 employees now.

The losses and bailout package were widely expected after a costly failure in Mitsubishi's marketing strategy in the US, which drew car buyers with very easy credit terms. When many of those customers did not pay their loans, the US finance unit of Mitsubishi was left with huge losses. And vehicle sales plunged after the company stopped lending to customers with weak credit, dropping by a quarter in the US for the year that ended March 31.

After being cut off by DaimlerChrysler, Mitsubishi Motors turned to the Mitsubishi Group, a loosely affiliated collection of companies in businesses from aerospace to finance and shipbuilding. The largest share of the ?50 billion (US$4 billion) in new investment announced Friday will come from Mitsubishi companies. JP Morgan Chase will underwrite a sale of ?00 billion of preferred shares, which do not carry voting rights.

With more than ? trillion (US$8.9 billion) in debt, Mitsubishi Motors badly needs money to finance the development of new vehicles. But even with the bailout, analysts say Mitsubishi's condition has, at best, gone from critical to stable.

"This is urgent surgery to stop the bleeding," Koji Endo, an auto analyst at Credit Suisse First Boston Securities Japan, said of the bailout. The restructuring steps probably will not be a complete solution to Mitsubishi's troubles, he added.

With annual production of about 1.5 million vehicles, Mitsubishi Motors is too small to compete against much larger rivals, like Toyota and Nissan, unless it finds a unique way to appeal to car buyers, the way Porsche has done with its sports cars or Subaru with its all-wheel drive wagons and sedans.

"Such a small-volume manufacturer cannot survive in the long-term unless they find a really strong niche," said Endo, who expects Mitsubishi to again look for a larger partner in a few years.

This story has been viewed 3677 times.

Comments will be moderated. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned.

TOP top